Russia and Iceland act to stem banking crisis

Iceland took over its second largest bank today and Russia announced an aid package for the financial sector to bail out victims…

Iceland took over its second largest bank today and Russia announced an aid package for the financial sector to bail out victims of the global financial crisis.

Home to 300,000 people, Iceland used emergency powers adopted yesterday to dismiss the board of directors of Landsbanki and put the bank in receivership, a minister told state radio today.

Iceland also propped up its battered currency and said Russia would lend it €4 billion ($5.44 billion) to help it through a financial meltdown that threatens national bankruptcy.

However, Russia's deputy finance minister Dmitry Pankin said Russia had not made any decision on lending money to Iceland.

Russian President Dmitry Medvedev announced an extra 950 billion roubles ($36.4 billion) of new credit for banks at an emergency Kremlin meeting after Russian stocks suffered their worst pounding ever the previous day.

Medvedev said that most of the money, which is offered over five years, would be channelled through the biggest two state- controlled banks, Sberbank and VTB.

The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialised countries closer to recession. Conditions remained poor for lending between banks.

Shares in some of Britain's biggest high street banks tumbled on news of funding talks with the government.
Royal Bank of Scotland was the biggest loser, with its shares down more than 30 per cent to a 13-year low.

"The big banks and the chancellor met yesterday night. Recapitalisation is one of the options being considered," a source familiar with the talks said.

US officials have called for a "forceful and coordinated" global reaction to kickstart anaemic bank lending but such a unified approach remains elusive.

Sparked by the collapse in the US housing market and increase in bad loans, the crisis is the worst to hit the banking world in 80 years. People around the world are worried about protecting their savings and keeping their jobs as some of the pillars of global finance give way.

Reuters